2021 Housing Crash Response to MeetKevin - YouTube

Hey guys it's Ken McElroy. So a lot of people are  asking me to kind of weigh in on some of the other  

gurus out on YouTube and so I do follow a lot  of them and one of the kids that I follow and I  

call him a kid because he looks like he's under 30  years old but it's uh it's Meet Kevin and I like  

uh his content generally I like it a lot actually  I I love his facts I love how he's analytical and  

and I think generally he looks like he's a great  guy and he's a hustler and I appreciate anybody  

like that but I just watched his video called the  coming housing crash in 2021 and while I agreed  

with most of it there was a bunch of things I felt  like he might have left out so I just want to add  

some things but I want to commend Kevin because I  think he did a great job on the videos he's done.  

I don't necessarily agree with him on where he  thinks that the housing market's going to go  

but I’m going to articulate a few things that I  think are really really important or maybe that he  

didn't talk about in the crash video of 2021. And  maybe I didn't articulate enough in my crash video  

of 2021 and just to be clear I really believe  that we are gonna have a serious housing crisis  

and I think we're right in the beginning of  it and I’m going to go into the reasons why.  

So I want to start with mortgage delinquencies  because this is something that Kevin didn't really  

talk very much about. Mortgage delinquencies are a  massive indicator even though the cares act rolled  

out these forbearance programs and we have lots  of people that are on these forbearance programs  

the real issue I think is that we have over two  million people that are over 90 days delinquent,  

okay, so that's a massive indicator there's  four million people delinquent that is which  

is way higher than mortgage delinquencies  were before COVID. But there's four million  

right now so there's a couple websites that I  really want you to look at. One is black knight  

k-n-i-g-h-t. I love this website because they  take all this mortgage data whether you're in  

forbearance or not in forbearance they're looking  at housing they're looking at apartments they're  

looking at houses they're looking at all  the single-family stuff and they have  

great data and great resources that's one. The  other one is the mortgage bankers association.  

I would look on there because those are the folks  that are collecting the dough. And don't forget  

if you don't pay your mortgage then the mortgage  doesn't pay someone else. It does affect someone  

else and nobody's really talking about that  right now. So the mortgage bankers association  

is another great resource another another  great website that you need to watch. What I  

really like about the black knight resource  is that they have these you know different  

graphs and things like that and the one thing I  wanted to show you serious delinquencies - 20%.  

An additional 370 000 borrowers became 90 days  past due in July now they also ran out of stimulus  

money on employment money in July as well and this  is up over 1.8 million from pre-COVID levels. And  

it goes on and on and on to talk about all the  different graphs and all the different stuff  

but the really cool thing is if you guys are real  estate investors you can go in and actually see  

these are the markets with the largest delinquency  increases and these are the markets with the  

lowest. And so you can kind of track by market  because as you guys know mortgage delinquencies  

in some cities are better than others and it's  just going to be that way and so they track it  

by market. So as a real estate investor you can do  a deep dive on all of this stuff so I’m going to  

come back to mortgage delinquencies in a little  bit because I really believe that it's going to  

add massively to the inventory which is super low  which I’m going to talk about in a second. The  

next piece that Kevin talks about is evictions.  Now he talks about evictions but I went through  

this in 2008. I experienced it firsthand we had  massive upheaval in 2008 on the mortgage side and  

the financial side and on the eviction side. Now  I get the luxury of owning about 10 000 apartments  

and so i’s plugged into a national network I’m  plugged into the national apartment association  

I’m plugged into the small owner’s association  for the folks that own smaller properties  

and I’m plugged into the national multi-housing  council. I’m members of all those things  

including the urban land institute or uli.org.  These are all great resources but one of the  

things that I want to show you today and one of  the statistics I think that Kevin was way off on  

was on evictions. If you go to the  AspenInstitute.org you'll see that the  

COVID eviction crisis is an estimated of 30 to 40  million people in America that are at risk. That's  

a significantly higher number than Kevin mentioned  in his videos. And I will tell you right now  

that before COVID we already had a  rental housing shortage. We already had  

an affordability shortage because rents have  gone up so high. We already had markets peaking,  

we already had concessions emerging, we already  had occupancies dipping all over the country in  

various cities. Some cities were doing just  fine and others were flat or negative already  

pre-COVID. So just to talk to you a little bit  about apartment shortage or housing shortage  

I pulled up the national apartment association  which I used to be on the board. They're based  

in Washington D.C. It's naahq.org. You can  go on and take a look at this for yourself  

or the national multi-housing council which is  nmhc.org. These are great organizations that track  

rental housing. Right now they're tracking rental  payments and delinquencies by city by submarket.  

Great data. This is part of the data that I’m  going to use for you today but I want to show you  

that this is an article that came out in 2017 and  this is the article the united states needs 4.6  

millions of new apartments by 2030 or it will face  a serious shortage. Okay this is just three years  

ago. We obviously did not deliver this. These  30 or 40 million people that are facing eviction  

obviously they're not all going to get evicted but  there's going to be a large percentage of people  

that are not going to be able to stay where they  are what's going to happen. It's going to put more  

demand on the rental housing. So what we have is  we have a housing crisis. We have a housing crisis  

because we have people that are going to lose  their homes and we have people that are going  

to get evicted. It's going to be putting more  pressure on rental housing. So rental housing  

over the long term is going to do very very  well. Single-family prices are not going to  

do very very well because the inventory levels  are going to increase over the next 18 months.  

In 2008, home ownership was at its highest  point in a long long time, but after 2008  

10 million people got displaced from the fallout  of 2008. And what did those people do? They went  

into rental housing. That's why we have this big  run in rental housing. That's why we've had this  

big demand in rental housing. It increased the  demand which increased the rents which increased  

the values all of those things, pushed the values  up. It was a result of 2008 and the fallout from  

the housing crisis that created the rental demand  and we still weren't out of the woods as you saw  

from that article. So the percentage of the four  million people that are going to lose their homes  

and the percentage of the people that are going  to get evicted, they're all going to move around  

and they're all going to move into rental housing.  And the biggest issue governments have right now  

it's actually homelessness. That's the biggest  issue we face. And by the way that was already  

going on. It was already going on in Portland it  was already going on in Seattle it was already  

going on in San Francisco and a lot of other big  metros and people were moving as a result of it.  

And they were moving as a result of the  government situation around those things  

that was already happening. And so it's only  going to get worse so like so many other things,  

COVID has been an accelerator for things that were  already in motion. So let's talk for a moment. How  

can housing prices be soaring? Because what's  happening is inventory is super low right now.  

At the end of July inventory was only 1.5 million  across the whole country or basically three months  

of inventory. That's it. It's the lowest ever  recorded. And why is that? That's because people  

don't want to move right now. I wouldn't if  I had financial uncertainty. There's no way  

I would be moving. I’d be trying to figure out  how much savings do I have? Do I have a job?  

What's my burn rate? Do I have to take care of  my family? Am I going to have any income next  

year? How much equity do I have in my home? All  of those things. People are taking an assessment  

of their personal financial situation right now  and they're hunkering down waiting to see when  

this whole thing's going to be over and that's why  listings are low right now. That's why inventory  

is low right now. Low inventory high demand high  prices. So in in July as you can see we had a 24.7  

price jump just in the month of July during the  pandemic. So if you look right now you can see  

that never before has the United States  ever experienced such low inventory.  

That's why prices are jumping right now,  but that's all going to change as evictions  

roll out, as mortgage delinquencies turn into  foreclosures, and people move into rental housing  

and the inventory jumps up and the pandemic's  over. And people are trying to sort out what  

they want to do next and they're going  to list their houses, scoop their equity  

and figure it out later. So one last question.  When it comes to housing prices we all know that  

housing prices have jumped over the last 10  years. In fact, right now they're just north  

of 300 000. The highest price inflation adjusted  ever. We also know that we have the lowest amount  

of inventory ever. So my question to you is  do you really think it's going to go higher?  

And maybe you're right maybe I’m right. I don't  know. But I think given all this pandemic and  

given the fact that there's all these businesses  closing and all these mortgage delinquencies and  

all these evictions pending and all these  people that are on unemployment right now,  

I think that we've peaked but maybe I’m wrong. So  just to summarize I think that this Coronavirus  

recession is a housing crisis on two levels. One  on the mortgage side and two on the eviction side.  

In addition to that we have a lot of people  that may never go back to work to wherever it  

is they were working. We know this. We're seeing  bankruptcies, we're seeing businesses closed all  

over the place. Another great website that I look  at is called EPI or economicpolicyinstitute.org.  

Now it's just a think tank. I understand that, as  are a lot of these. They just take data, they put  

them together and it's something for you to look  at. But I love this one and just two days ago  

they said that we're still at 11.5 million job  deficit. Still remains okay. When we started we  

were somewhere between three and four million  so this is call it seven million more people  

seven to eight million more people that are still  - may or may not go back to work. But I want to  

show you a couple other things. One this is a  report that came out from CNBC. 5.7 million small  

businesses are at risk of closing. This is another  one. This is Yelp. Now as you guys know, Yelp just  

rates businesses. This is a very interesting -  55 percent of businesses closed on Yelp have shut  

down for good during the coronavirus pandemic.  That's 55 percent. Yelp has no skin in the game  

they just report businesses and they rate them.  That's all it is. So nobody's really talking  

about this small business issue this is a tsunami  of closings these are people that own businesses  

these are people that employ people. These are  real paychecks people are getting. To pay rent,  

to pay mortgage, to pay car payments, to pay gym  memberships and those kinds of things. That's  

what this is. This is a massive number that's not  really being addressed right now. And it's going  

to shake itself out over the next 18 months as we  get this vaccine, and as people go back to work  

and as things go back to normal. There's millions  of businesses that are just not going to make it.  

And you've already seen the news with a lot of  big ones have already filed bankruptcy and already  

going out of business permanently for good. So I’m  going to give you five things that I really want  

you to look at over the next 12 months. The first  one is I really believe that prices are going  

to go down as inventory goes up and what I would  encourage you to do is really dig deep into these  

numbers. Really look at the mortgage delinquencies  by your city, by your state, by your sub market,  

and this should help you make really really good  decisions in the future. For your buying decisions  

or your rental decisions. Number two, evictions  are a real thing. There's gonna be a number  

of people that will never be able to pay their  rent as a result of their financial situation.  

It's gonna depend largely on where they live,  where they work, how much they're paying for rent  

right now. The CDC has all the landlords locked  down through 2020. no evictions. That obviously  

is going to roll up into delinquencies on the  mortgages on those particular properties that  

people are renting from. So that's just  going to add to the mortgage delinquencies  

on the houses and then the commercial side and  drive prices down even further. In addition,  

those renters are going to get displaced. And  yes, while they might not have good credit,  

they will find a place to live. They will roommate  up they will move home. In fact, 3 million  

people moved in with their parents and their  grandparents from the pandemic alone. 3 million.  

So the total number right now of adults that live  at home totals 32 million people. So right now we  

have 32 million people living with their parents  or their grandparents. So obviously they're going  

to do that instead of going on the street, but  still I still believe that we're going to have a  

homeless crisis as a result of that because not  everyone has that option unfortunately. Three,  

you need to watch your mortgage defaults. I  know we talked about mortgage delinquencies  

and how they jump, the inventory numbers, and  that's going to drive housing prices down. But you  

need to watch the mortgage delinquencies. Mortgage  delinquencies are already happening on commercial  

buildings, retail buildings, malls, office space,  multi-family, and residential already. All you got  

to do is go look for those numbers. It's all  over the internet. There are people defaulting  

all over the place. I have friends in retail  in malls and they're getting annihilated,  

hotels they're getting annihilated. No one can  service operating expenses and debt when they're  

not getting any income. It just can't happen.  You either have cash reserves to pay them or you  

don't, and some lenders are working with you and  some are not, so watch your defaults by market.  

Back in 2009-2010 I personally bought a  whole bunch of properties from banks. I  

bought a massive property in San Antonio, Texas.  680 units from Bank of America, that was 50%  

vacant, and it was devalued by almost half what  they had loaned on it. So these mortgage defaults  

are coming. That's how you want to buy real estate  and then you want to ride it up the next wave,  

but you don't want to get caught catching a  falling knife. You don't want to catch a piece  

of real estate before it falls all the way to  the bottom. Four, I want you to pay attention to  

migration patterns. People are moving all over the  place and there's all kinds of reasons and we can  

do a whole video on migration patterns, but if you  want to really take a look, just go look and see  

where the moving trucks are going. No one can get  a moving truck right now. U-Haul’s packed, but  

one thing U-Haul does do is they track. Are they  going from New York to Phoenix - that's trackable.  

That's a data point. People know that they're-  if a truck's being dropped off in Phoenix, they  

say that's where they're going. You can start to  see those statistics. You can also see that with  

the out-of-state driver's licenses. So as people  move and they trade in their driver's licenses  

and they change their life to a new location,  they usually upgrade all their personal data.  

That is all data that's all tracked, so you got to  pay attention to these migration patterns. These  

moving companies are a great way to do it - to  try to see where everything's going because it's  

going to help you to make sure you can mitigate on  the cities and the sub markets that are going down  

and the ones that are going up. I’m telling you  people are moving all over the place right now  

and it's causing small bubbles in some areas and  depression in others. Be very very careful here,  

but just pay attention to migration patterns  and try to get as much information as you can  

on this before you buy or invest in the next sub  market. So fifth and final, I really want you to  

take a look at these business closures, okay? You  really need to look at this because if let's say  

for example that you own property in and around  American Airlines as an example, who already just  

announced that they're going to lay off 18 or 19  000 people immediately, and it could go up to 40  

000 by October, just a couple months away,  so obviously that's going to have massive  

economic downturn in that particular area.  You're going to have a massive economic downturn  

those people are people that go to coffee shops,  they go to dinner, they go to lunch, they rent,  

they they own homes, they drive cars, they do  all of the things in a community that they would  

normally do, and now potentially they're going to  move or go on unemployment or find another job,  

okay? So all this stuff is happening all over  the place and I personally have witnessed this  

over the years through the different cycles. As  as employers come and go they shrink, they merge,  

they go out of business, they relocate, it always  has a financial impact on a on a neighborhood,  

on a sub-market, on a town, it just will. I’ve  seen it on military bases when military bases go  

away and they close them or they relocate them.  It kills an area. This is no different - this  

is exactly what is about ready to happen. These  business closures are something that not a lot of  

people are watching right now, but you really need  to take a close look at this in your sub market  

and see and just determine how much financial  impact might you have. So I really appreciate  

you guys watching, I want to thank Kevin for  being a good sport, I really enjoy his videos  

and um if you guys like this please hit the “like”  button and subscribe and send it along to some  

of your friends. I really enjoy doing these  guys and so I’ll see you in the next video.